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MEXICO: Peso Consolidating Monday Selloff Following Latest Trump Comments

MEXICO
  • The Mexican peso is consolidating on Tuesday following substantial losses during Monday’s session, that saw USDMXN rise over 3% to levels just below 20.80. More stable equity markets have offered little reprieve for the peso, with overnight tariff rhetoric potentially adding further headwinds at the margin.
  • Early comments saw Trump state tariffs would be imposed in the near future across a wide/key set of industries. These were followed by comments later on that Trump would want a much higher universal tariff rate than 2.5% (which according to the FT is what incoming Treasury Secretary Bessent is pushing for as an initial step on tariffs, before rising gradually).
  • While MXN volatility continues to be a common feature within EM FX markets, the short-term technical resistance just above the 20.90 mark remains intact.
  • Banorte expect a narrowing of the short-term MX-US differential from 550bps to 450bps, coupled with rising implied and realized volatility, as further reducing the carry trade appeal. Given high uncertainty, Banorte recommend USDMXN purchases on dips, at least for this quarter, and forecast USDMXN to close 2025 at 21.40, with a trading range of 20.10-21.80.
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  • The Mexican peso is consolidating on Tuesday following substantial losses during Monday’s session, that saw USDMXN rise over 3% to levels just below 20.80. More stable equity markets have offered little reprieve for the peso, with overnight tariff rhetoric potentially adding further headwinds at the margin.
  • Early comments saw Trump state tariffs would be imposed in the near future across a wide/key set of industries. These were followed by comments later on that Trump would want a much higher universal tariff rate than 2.5% (which according to the FT is what incoming Treasury Secretary Bessent is pushing for as an initial step on tariffs, before rising gradually).
  • While MXN volatility continues to be a common feature within EM FX markets, the short-term technical resistance just above the 20.90 mark remains intact.
  • Banorte expect a narrowing of the short-term MX-US differential from 550bps to 450bps, coupled with rising implied and realized volatility, as further reducing the carry trade appeal. Given high uncertainty, Banorte recommend USDMXN purchases on dips, at least for this quarter, and forecast USDMXN to close 2025 at 21.40, with a trading range of 20.10-21.80.